the Saudi market If your business targets the Saudi market, either you are a manufacturer or an importer, you need to know some basic information about the Saudi economic environment, so SanedCert collected the most significant needed information for you, as this is a part of our consultant role.

Saudi Arabia is the largest country in the Gulf region with a population of 33 million, and the largest economy in the Arab World with a GDP of $ 782 billion.  It is the only G-20-member country in the region. The Saudi Arabian Government (SAG) exercises control over the main economic activities of the country’s oil-based economy.

Vision 2030:

SAG launched a broad and ambitious socio-economic reform plan known as Vision 2030, to diversify its economy away from oil. The program is aimed at diversifying the economy, creating private-sector jobs for a growing population, and placing government finances on a sounder footing.

Saudi Arabia’s Vision 2030 and the National Transformation Program (NTP) suggest a paradigm shift from a public sector-driven economy to one driven by the private sector as the main engine for economic growth and job creation.

Vision 2030’s most significant goals and targets include:

• Spurring private-sector growth
• Increasing local content requirements in manufacturing, Particularly in defense equipment and basic materials
• Enhancing Saudi government efficiencies
• Improving the provision of government services; increasing revenue generation through new taxes
• Transforming the Public Investment Fund (PIF) into the world’s largest sovereign wealth fund
• Providing affordable housing to citizens
• Developing Saudi Arabia’s capital markets
• Building a renewable energy sector
• Attracting greater foreign direct investment
• Privatizing dozens of government entities
• Expanding the ICT sector; further developing the mining sector
• accelerating the development of the public transportation and the railway network
• Building an effective domestic tourism infrastructure
• Expanding natural gas and petrochemical production.

the Saudi Market Features:

Branding and Content:

The Saudi market can be very sensitive to branding and materials content, foreign companies are encouraged to familiarize themselves with Saudi traditions, customs, and strict observances of the Islamic faith to ensure that branding does not unintentionally offend local norms and practices.

Inflation:

Saudi Arabia’s inflation rate averaged 2.4 percent from 2000, until 2018.  During 2018, inflation was .2 percent and has averaged about -2. 8percent in 2019.  Costs went up faster for food and non-alcoholic beverages, transport, furnishings, and health. Also, prices rebounded for miscellaneous goods and services, recreation, and culture, and fell for clothing and footwear.

Performance and Localization Requirements:

Government-controlled enterprises in Saudi Arabia are increasingly introducing local content requirements for foreign firms, to incorporate new Saudi employment and localized production goals.

SAG’s Vision 2030 program calls for 50 percent of defense materials to be produced and procured locally by 2030.

Commercial Disputes Settlements:

In 2016, the Saudi Center for Commercial Arbitration (SCCA) was established, with arbitration rules that conform to internationally recognized standards and principles.  The SCCA offers comprehensive dispute-resolution services to both domestic and foreign firms.  Some firms have already started incorporating the SCCA by reference in their contracts.  SCCA arbitration awards can be enforced in local courts if they comply with Shari’a law.

Investment Climate:

SAG has embarked upon an ambitious series of socio-economic reforms, collectively known as “Vision 2030.”. In connection with these ambitious plans, the SAG seeks to expand and sharpen the country’s knowledge base, technical expertise, and commercial competitiveness.  To help accomplish these goals, Saudi Arabia seeks increased foreign investment.

Foreigners are permitted to invest in all sectors of the economy, except for specific activities contained in a “negative list” that currently precludes foreign investment in three industrial sectors and 13 service sectors, among them upstream petroleum and real estate investment in Mecca and Medina.

The SAG took several positive steps to improve the investment climate in the Kingdom, including:

• Moving forward with plans to privatize many state-owned entities across a range of sectors, including transportation, education, energy, and healthcare, albeit at a gradual pace.
• Continuing to ease requirements for foreign investors trading on Saudi Arabia’s stock exchange, the Tadawul (though foreign investment still comprises a small percentage of the local stock market).
• Preparations continue for an initial public offering of up to 5 percent of Saudi Aramco’s shares; the shares are likely to be listed on the Tadawul and may also be listed on a major international exchange.
• Attracting foreign investment in entirely new sectors, including renewable energy, entertainment, and waste management.
• Seeking to increase the participation of women in the workforce; a royal decree to permit women to drive starting in 2018 is expected to ease some transportation challenges previously cited as barriers for women’s entry into the labor market.

Customs and Standards:

Import Documentation:

Under its World Trade Organization (WTO) obligations, Saudi Arabia has committed to implement a transparent and predictable import licensing system.

The original documents must be accompanied by an Arabic translation of a radiation certificate, if applicable.

Saudi exporters must submit a copy of their commercial registration, which indicates they can export.  They are also required to submit a certificate of origin of Saudi products (issued by the Ministry of Commerce and Investment).

The following documents are requir ed for exporting goods to Saudi Arabia:

• Original certificate of origin legalized by the chamber of commerce of the exporting country;
• Original commercial invoice (in triplicate) invoice attested by the agency responsible for trade in the exporting country and which must state the country of origin, name of the carrier, brand, and quantity of goods, and description of the goods including weight and value
• Irremovable label showing the country of origin affixed on the commodity
• A clean bill of lading or airway bill
• Documents indicating compliance with health regulations, if applicable
• Insurance documents, if shipments are sent CIF;
• Packing list
• Certificate of conformity with applicable Saudi standards, if available.

There are some restrictions include:

• Certain items such as antiques, Arabian horses, livestock, or subsidized items need special approval to export, e.g., feed additives require a Certificate of Analysis that needs to be authenticated.
• The foodstuff validity period together with ingredients should be label ed in Arabic in accordance with the Saudi or GCC specifications.
• Register medical preparations at the Ministry of Health (especially medicaments and herbs).
• Exports of oil, petroleum products, natural gas, and wheat all require export licenses.
• Saudi Arabia has removed its export ban on all scrap metals and will not apply export duties on these products.

Import Tariffs:

Saudi Arabia uses the Harmonized Commodity Description and Coding System for tariff classification purposes.  As a member of the Gulf Cooperation Council (GCC), it applies the GCC common external tariff of 5 percent to be levied on most goods imported from countries outside the GCC.

Goods that compete with those produced domestically are dutiable at rates of 12 percent or 20 percent, depending on the industry.  Certain textile imports are among the products on which the 12 percent rate applies.

Certain goods are exempt from the common external tariff.  For instance, goods manufactur ed within the GCC states are exempt from any dut ies as they are transport ed within the union.  There are also a limited number of GCC-approved country-specific exceptions.  Saudi Arabia’s exceptions include 758 products that may be import ed duty-free, including aircraft and most livestock.

Standards for Trade:

Saudi Arabia adheres to standards developed both domestically by SASO and by the GSO, an umbrella group serving the six countries of the Gulf Cooperation Council.  While the GSO continues to push for standards harmonization across the Gulf, SASO maintains significant authority in developing, elaborating on, and enforcing standards for Saudi Arabia specifically.

In January 2018 SASO rolled out SABER, electronic certification, and conformity assessment system, which became mandatory for all imported goods entering Saudi Arabia as of July 2018.  Saber is an electronic service provider for obtaining Certificates of Conformity for products destined to the Saudi  market under applicable Saudi standards and specifications rules.

The service is provided under the supervision of the Saudi Standards, Metrology and Quality Organization (SASO) in collaboration with Thiqah For Business Services.

Saber works like an online portal and covers both regulated and unregulated products.  To submit a regulated product for importation, the importer will have to initiate the certification request by first, registering their product into the Saber system by entering the product details; then, selecting the product’s classification; next, have a SASO-approved certification body assigned to the product for conformity assessment; and finally, await an approval certificate.  If the product receives its approval certificate, the importer is then issued a shipment certificate and is sent to Saudi customs before the product can enter the market. The entire process is done online through the Saber system.

Trade Agreements:

Saudi Arabia is a member of the Gulf Cooperation Council (GCC) which consists of Kuwait, Qatar, Bahrain, the UAE, Oman, and Saudi Arabia.  Membership confers special trade and investment privileges within those countries.

The GCC implemented a Customs Union on January 1, 2003, that stipulates free movement of local goods among member states.   The member states also agreed that they would switch to a single currency by January 1, 2010, at the latest, which has not materialized as yet, and the common market proposal is still being work ed out.

Saudi Arabia is also a member of the League of Arab States.  The League has agreed to negotiate an Arab Free Trade Zone.

Economic Indicators:

GDP Growth:

Saudi Arabia is the largest economy in the Middle East and the richest Arab country in the region. However, the economy of Saudi Arabia is almost entirely based on oil, with GDP growth being closely link ed to

real oil growth. Extended OPEC production cuts and declining oil prices in 2020 pulled the Saudi

economy into recession, with GDP contracting by an estimated 5.4%. According to the IMF’s October 2020 forecast,

Crude Exports:

Saudi Arabia’s crude exports fell to a record low of 4.98mn barrel per day (b/d) in June 2020 as Covid-19

weighed on global oil demand and prices, prompting OPEC to introduce several production cuts. Crude

exports have started a slow recovery since late summer and reached a seven-month high of 6.35mn b/d

in November 2020. This was nevertheless below an already nine-year low of 6.82mn b/d in 2019.

Low oil revenue weighed on Saudi Arabia’s current account balance, with a projected rare deficit of USD 17.1 billion in 2020, against a surplus of USD 47 billion a year earlier. Saudi Arabia’s foreign revenues were further impact ed a quasi-ban on Hajj – the Muslim pilgrimage, which attracts millions of visitors to the country each year – as Saudi authorities limited the entry of foreign nationals to slow the spread of Covid-19 cases.

The Standard of living:

The standard of living is one of the highest in the Middle East, with a GDP per capita over USD 20,000. The country is still mark ed by an unemployment rate of about 14.9% among Saudis (8.5% in total) (third quarter of 2020 – Saudi General Authority for Statistics), especially among young people, and a high degree of social inequality. Unemployment among Saudis rose as high as 15.4% in the second quarter of 2020 at the height of the pandemic.

Main Sectors of Industry:

Agriculture:

Agriculture accounts for 2.2% of the GDP and employs 2.3% of the active population. Agricultural productivity remains limited compared with public investment that funds the sector. Because of geographical and climatic constraints (droughts), Saudi Arabia imports most of its agricultural and food product requirements. Water scarcity is a serious regional problem that the country is likely to face in the coming years, as growing cultivation of wheat presents the threat of water depletion.

Industry:

The industrial sector represents 47.4% of the GDP and employs 24.8% of the workforce. It is dominat ed by non-manufacturing activities (oil drilling). The country has the largest oil reserves in the world and is also the largest producer and exporter of oil in the world. Oil accounts for nearly 80% of exports and 70% of government revenues (and more than 40% of GDP). The share of non-oil industrial sector has been increasing along with economic diversification efforts of the Saudi authorities.

Services:

Lastly, services represent 50.4% of the GDP and employ 72.9% of the active population. This sector is mainly dominat ed by tourism, financial and banking services and the insurance sector. Tourism generates very high revenues (almost 4 million tourists per year), due in particular to the Hajj,

the pilgrimage to Mecca that takes place in the last month of the Islamic year, that all Muslims are expect ed to make at least once during their lifetime. The country introduced a new upon-arrival tourism visa to nationals of nearly 50 countries in an attempt to increase tourism revenues.

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